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Tangled up in taxes

Rochester Business Journal

April 5, 2013

Once upon a time, some people had the quaint notion that online sales needed protection from taxation. That's when e-commerce was in its infancy.

Those days are long gone. The federal government estimates total U.S. e-commerce sales reached $225.5 billion last year, up nearly 16 percent from 2011.

Even online behemoth Amazon.com says online sales should not be tax-free. But how those taxes should be applied is a complicated question.

Last week, New York's highest judicial panel delivered its answer: The Court of Appeals ruled 4-1 that the state can collect sales taxes from Amazon.com and other online retailers based outside the state if they pay New York residents to actively solicit business for them here.

The case dates to 2008, when then-Gov. David Paterson and lawmakers enacted the so-called "Amazon tax" first proposed (and later dropped) by former Gov. Eliot Spitzer. The law was crafted to skirt a 1992 U.S. Supreme Court ruling that out-of-state retailers with no physical presence in a state cannot be compelled to collect sales tax.

Amazon has no stores, warehouses or other facilities in New York, but it did have thousands of in-state "affiliates," independent website operators who receive a commission for sales generated by links to Amazon's site.

The New York law was challenged by Amazon and Overstock.com, which has since dropped its affiliates program.

"The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden," Chief Judge Jonathan Lippman wrote for the appellate court majority.

The core legal question-whether New York's law violates the U.S. Constitution's Commerce Clause-may end up with the U.S. Supreme Court. But there's another question here: Would it make sense to force online merchants to collect taxes under current laws for more than 6,000 taxing jurisdictions nationwide?

Not unless those laws are greatly simplified to make multistate tax collection easy.

The federal Marketplace Fairness Act-which Amazon supports-outlines a way to do just that. It's time that Congress made action on this a priority.

What You're Saying

Keith Yockey at 12:19:27 AM on 4/6/2013

Despite what the NY court stated, affiliate nexus is unconstitutional. These website owners are not employees. Fact is, they serve the same function as the New York Times if Amazon purchased paid advertising in their paper.

Despite what the NY court stated, affiliate nexus is unconstitutional. These website owners are not employees. Fact is, they serve the same function as the New York Times if Amazon purchased paid advertising in their paper.

Beyond that, the law is bad for business. Just look at CT and NC where similar law was passed. Amazon/Overstock pulled their programs there too, and the result was not only $0 in Sales Tax revenue, but a loss of income tax revenue as well when webowners no longer had a revenue source.

In IL, it was claimed the law would generate $150M. Companies not only moved to neighbor States to avoid the tax, actual revenue gained in IL was less then $5M. The number is so low that the dept. of revenue no longer tracks that income stream.

IL was sued by a marketing group, and the law was overturned.

Indeed, it seems headed to the US Supreme Court to have this law (now in 10 States) nullified. < close